Africa has the world’s fastest-growing population and is projected* to account for more than 40% of the global population growth in 2030. With these numbers, continued improved GDP growth, rising national income, and subsequently rising household incomes and purchasing power will bring super demand-supply and create immense opportunities on the continent for investors.

“Africa is fast becoming a consumer continent and very attractive to investors”, says Wole Obayomi, Head of Consumer and Industrial Line of Business for KPMG in Nigeria. “While specific markets for entry should still be defined by their diversity, the continent is densely populated with a rising middle class of urban dwellers. In fact, an average 40 percent of the one billion population** – which consists of the working class or entrepreneurs and members of households – have an average disposable income of between US$2 and US$20 a day.”

A young, buyers market

Research shows that youth will be the driving factor for growth in Africa’s consumer markets. Obayomi explains: “If we look at Nigeria, for instance, about 45 percent of the country’s current population of 170million is said to be under the age of 15, and it is projected that 70% of the population will be under the age of 35 by 2030***. These demographic attributes will not be materially different amongst other African countries and as there is power in numbers, the youth will likely also play a role defining consumption patterns of consumer goods and based on this, accelerate certain changes within retail industries, specifically.

For key investment or business consideration - a promising youthful and trendy consumer segment, for instance, defines their needs as: affordable and decent housing in good neighbourhoods, financial services, access to consumer credit and mortgages, as well as technology and telecommunications for voice and Internet data access. Additionally, in the case of fast moving consumer goods (FMCG) – including: food, clothing, goods, personal care products and entertainment - consumers look for quality, but inexpensive products.

Age of the Afropolitan

Related to consumption patterns of these urban dwellers, recently the term ‘sophisticated African consumer’ continues to emerge more frequently - particularly with a preference for sophisticated shopping. “Described as cosmopolitan and either Diaspora repatriate or home-based individual with international exposure, the new sophisticated African consumer has become wealthier, mobile and more educated,” adds Obayomi. “The Afropolitan consumer is enthusiastic to stay on top of market leading trends, where they are fashionable and brand-conscious. However, they also want value for money, or may be price-sensitive and, will look for the best deals. These consumers are therefore keenly interested in convenience shopping, either online or in malls rather than the traditional open markets, as these commerce models increase accessibility for them to make an informed choice or purchase.”

Establishing a market entry strategy

Obayomi explains that rising consumer markets will have multiplier effects in continuing to spur growth of African economies and – through demand-supply principles – accelerate the organic growth of the consumer goods industries. By 2030 Obayomi expects the largest growth in the consumer goods industries will be in food, apparel, personal care products, furniture and furnishing, electronics, entertainment, automobiles, computers, telecommunications and mobile technology.

“Manufacturers and exporters of affordable good quality consumer products should be looking to Africa as part of their business expansion strategies. For those who have been exporting to Africa and their products have broad acceptability, the time has come for them to consider setting up manufacturing or packaging facilities, where products and/or packaging can be adapted to suit each country’s consumer population,” suggests Obayomi.

New market entrants, however, should look to export products to Africa and distribute their products through local distributors first, to enable them to build their brands in the short-term before setting up manufacturing plants in the long-term. “Investors should look to enter the market with affordable branded, low to mid-market products and target the mass market in the major commercial cities first, to entrench their business in the short-term. Once there is a show of traction and returns on investment, investors should then look to introduce higher end products that can compete favourably on price and quality with the same or equivalent products that high end consumers would normally travel to Dubai, Europe and the USA to purchase.”

“Further to this, manufacturers and exporters should look to design the implementation of an e-commerce strategy, whether through their own online trading platforms or by forming an alliance with virtual e-commerce platforms for online retailing.”

There is also corresponding needs for investments in modern physical retail trading infrastructure. Obayomi confirms: “While there are activities currently in this area, there is still a supply and demand gap which provides significant investment opportunities for the retail property developers and with the rising consumer markets, increasing retail business will add to the organic growth effect in African economies.”

Finally, and as with any business, it is crucial to understand the dynamics and potential complexities of each market for entry - by studying the culture, taste, lifestyle and consumption patterns of the consumers. The fact that a particular product moves well in one country should not be viewed as a benchmark or indicator that it will move in another.

“Investors cannot have a narrow view of their market entry approach. There’s no denying that urban Africa holds immense opportunities and investors should examine their strategy, product, design and marketing plans through the lens of these insights to be able to adapt according to the growing trends for long-term and fruitful organic growth,” concludes Obayomi.

* http://www.africaday.info/statements.html?start=6 
**http://businessdayonline.com/2014/01/nigerian-middle-class-a-myth/#.UyGVLPmSzwY
*** Unconfirmed stat, though the numbers can be extrapolated based on current demographics and annual growth rate.

Courtesy: KPMG.